Botswana Mining Report Q1 2013

Industry Forecast

We are positive on the outlook for Botswana's mining sector over our forecast period to 2017. Diamondoutput will remain the mainstay of Botswanan mining production, boosted by new projects being plannedby both Gem Diamonds and Lucara Diamond Corporation; however, there are also key miningprojects being developed in the copper, uranium and coal sub-sectors, such as Discovery Metals' Bosetoproject. Botswana's mining sector is one course for stable growth over the next few years and we forecastthe sector to average 2.3% growth from 2012 to 2017, with the industry reaching a value of US$5.86bnby 2017.

Diversification Is The Priority

Botswana has been stepping up efforts to diversify its mining sector with the government aiming todevelop production of non-core minerals including, coal, copper and precious metals. Our expectation fora continued slow recovery in the US and Europe, two of the main export markets for Botswanan diamondproduction, will hinder growth in the country.One key measure, introduced in recent months, has been the amendments made to the country's taxframework with the level of company tax having been reduced from a minimum of 25% to 22%.Botswana's Minister for Minerals, Dr Ponatshego Kedikilwe, said the measures are aimed at encouragingforeign investment in areas of non-core mining including production of coal, copper and other minerals.

Coal mining has enjoyed one of the largest boosts in recent months and the government is in the processof drawing up a national Coal Development Unit (CDU), which will oversee development of miningprojects and transport infrastructure and will also act as a go-between between the government andprivate investors.

Botswana Leads The Rest

Botswana remains at the pinnacle of our mining risk/reward ratings and we see little prospect of thecountry being usurped in the near future. Botswana's impressive country risk scores are due to a stronglegal framework and investor-friendly environment. It has some of the lowest tax rates in the region andthere is little government interference in the mining sector. Furthermore, Botswana has some of thelowest rates of corruption in Africa. Botswana's mining potential is enormous, with huge diamonddeposits and numerous successful exploration projects. There is strong potential for growth due to thegovernment's focus on diversifying away from diamond production. Discovery Metals has begun drillingat the Boseto copper mine and African Copper has started operations at the Thakadu silver and goldmine. It is in coal production, however, that we expect to see the fastest growth rates, as the sector growsrapidly from its low base. Furthermore, while much of Southern Africa is undergoing greater resourcenationalism, we do not expect this trend to reach Botswana as it has pledged to maintain its businessfriendlyoutlook.

Country Overview

Exploitation of rich mineral reserves, especially diamonds, has been a significant driver of Botswana'seconomic growth. Diamonds, along with copper and nickel, are major focus areas in metal and mineralexploration, and earn more than three-quarters of the country's export revenues. More recently, coal anduranium have also emerged as key future revenue generators for the Botswanan mining industry.

The authorities in Gaborone have an impressive track record in garnering the maximum benefit from theproduction of diamonds, and we expect this trend to continue over the coming decade. Diamondscurrently dominate the economy but, with output set to decline over the medium term as reservesdwindle, the government has enacted a number of measures to ensure that revenues are used to aiddiversification. For example, a fiscal rule has been adopted that states that mineral revenues must be usedto expand the economy's productive base, rather than fund consumption expenditure. Owing to this ruleand other initiatives enshrined in successive six-year National Development Plans and the long-termpolicy Vision 2016, growth in the non-mining sectors is burgeoning.